Abstract: In this paper it is contended that the 'Digression
Concerning The Corn Trade And Corn Laws' appended to Adam
Smith's chapter 'Of Bounties' in The Wealth of Nations is
an instructive illustration of the author's approach to economic
analysis. It is shown how Smith analysed the market in its complexity
and that such analysis provided a material insight into the
market's operations over time. The passage of time is an integral
part of the analysis and hence the 'Digression' also develops
considerations of the significant role played by risk and expectations
in both the domestic and international corn markets. It is further
argued that the approach to economic analysis exhibited in the
'Digression' is entirely consistent with the scientific method
Smith developed early in his career and held to its end.
1 Introduction
Adam Smith appended a 'Digression Concerning The Corn Trade
And Corn Laws' to Chapter V 'Of Bounties', Book IV of his
The Wealth of Nations. While its subject was to remain an important
matter of economic policy debates in the British Isles for most of the
nineteenth century, this 'Digression' is also of interest in
that it nicely illustrates much of the author's approach to
economic analysis and, in particular, that of the market phenomena of
supply and demand. It also addresses issues concerning the
market-stabilising role of the speculator, both temporally and
spatially, that have concerned contemporary economists, a role that has
been challenged by Amartya Sen's theory of famines (Sen 1981;
O'Grada 2002, p. 17).
In this paper attention is drawn to Smith's rich and complex
representation of the corn market in the 'Digression' and it
is suggested that this is the manner in which Smith portrays markets
generally. In particular, the following discussion of the
'Digression' re-emphasises a point made by some of the better
historians of economic thought from Jacob Viner to Donald Winch to Emma
Rothschild--but rarely, if at all, by modem orthodox economists and
ideologically-driven journalists; namely, that Smith's
understanding of a market is very different from the simplistic and
highly abstract 'demand and supply' representations that
dominate modem undergraduate textbooks. Given that modem protagonists
still bend and reshape Smith's writings to gain leverage in the
debates that dominate the present, especially in those debates that came
in the wake of the recent financial crisis, it is a point that cannot be
too often repeated. In section two, Smith's representation of the
corn market in the 'Digression' is reviewed. In section three
it is shown that his nuanced and complex representation of both the corn
market and markets in general is entirely consistent with Smith's
philosophy of science. Finally, attention is drawn to how the
'Digression' ties consideration of the functioning of the
market to one of his principal preoccupations: political freedom and
security and their roles as drivers for the economic progress of
nations.
2 Smith's Representation of the Corn Market in the Digression
Smith commences a 'Digression Concerning The Corn Trade And
Corn Laws' with an exposition of the process of the supply of corn
to the domestic market from domestic sources; from the 'inland
dealers in corn ... including both the farmer and the baker',
together with the corn merchant (Smith 1981, Vol. I, p. 526). His
analysis is consequently of the market for the commodity corn as it was
supplied in all its manifestations to meet the demand of consumers. As
he noted, this was by far and away the largest market in the
contemporary economy so the subject he was addressing was of
considerable significance from his perspective (loc. cit.).
The corn market that Smith viewed is seasonal with an obvious and
significant period between one quantum of supply and the next. The
available corn must in effect be rationed over the period between
seasonal supplies so that through that period its demand and supply are
matched. This result is achieved by the corn merchant setting the corn
price for the period such that consumers will tailor their consumption
over time to the period's available supply of corn. 'By
raising the price he discourages the consumption, and puts every body
more or less, but particularly the inferior ranks of people, upon thrift
and good management' (ibid., p. 524). If, however, the merchant
raises the corn price too high, he expects he will be left with surplus
corn at the end of the current supply period and hence an amount
overhanging his market at the outset of the next period, so depressing
the latter's corn price and consequently reducing his profit. In
addition, the merchant will have to carry the risk to his stock that is
inherent in the passage of time.
Conversely, should the merchant underprice his corn, he expects not
to achieve the profit he should have while also carrying the moral
burden of failing to encourage the population to ration its consumption
over the supply period: with reference to a circumstance of an
inadequate supply of corn, Smith states that the merchant underpricing
his corn 'not only loses a part of the profit which he might
otherwise have made, but he exposes the people to suffer before the end
of the season, instead of the hardships of a dearth, the dreadful
horrors of a famine' (loc. cit.). While he is concerned in The
Wealth of Nations with man viewed from the perspective of his prudential
behaviour (Haakonssen 2006, p. 7), Smith's 'economic man'
is always a man, with all his complexity and failings, including varying
degrees of 'prudence'.
The same result arises from the activities of the market
speculator. Should such a merchant anticipate a shortage of corn later
in the supply period, he will purchase some of the current supply so as
to sell it later at a higher price. In so doing he will bid up the
immediate corn price thereby signalling to the consumers to curtail
their consumption as if in anticipation of a later shortage and to
spread the burden of that shortage across the supply period. The
speculator:
If he judges right, instead of hurting the great body of the
people, he renders them a most important service. By making them feel
the inconveniencies of a dearth somewhat earlier than they otherwise
might do, he prevents their feeling them afterwards so severely as they
certainly would do, if the cheapness of price encouraged them to consume
faster than suited the real scarcity of the season. When the scarcity is
real, the best thing that can be done for the people is to divide the
inconveniencies of it as equally as possible through all the different
months, and weeks, and days of the year. (Smith 1981, Vol. I, pp. 533-4)
Moreover, as it is very much in the personal pecuniary interest of
such merchants to get it right and since they can be expected, if only
for that reason, to have the requisite particular knowledge, Smith
concluded that they are the best suited to so unintentionally look after
the interests of the consumers of such an important commodity as corn,
rather than the institutions of the state.
The interest of the corn merchant makes him study to do this as
exactly as he can; and as no other person can have either the same
interest, or the same knowledge, or the same abilities to do it so
exactly as he, this most important operation of commerce ought to be
trusted entirely to him; or, in other words, the corn trade, so far at
least as concerns the supply of the home-market, ought to be left
perfectly free. (Smith 1981, Vol. I, p. 534) (1)
Thus it is by pursuing his best interest that the corn merchant
also achieves that of the society as a whole across the supply period.
'Without intending the interest of the people, he is necessarily
led, by a regard to his own interest, to treat them, even in years of
scarcity, pretty much in the same manner as the prudent master of a
vessel is sometimes obliged to treat his crew. When he foresees that
provisions are likely to run short, he puts them upon short
allowance' (Smith 1981, Vol. I, p. 525). Any failure of merchants
to act prudently in this regard would result in famine. (2)
Unfortunately, as Emma Rothschild and Amartya Sen (2006, p. 326) have
pointed out, Smith observed a tendency for a less reliable class of
people to become corn merchants (Smith 1981, Vol. I, p. 528). As such
merchants are encountered by the populous disciplining their consumption
of the most essential of commodities, the former become generally
unpopular and their activities, such as forestalling, reviled as beyond
the pale. As a consequence these merchants are generally held in poor
regard and hence decent men are disinclined to enter this trade despite
their critical role for the wealth of the nation One therefore gets the
impression from Smith that the corn market may not function as
efficaciously as is desirable, though he does not state as much.
The domestic corn market is, Smith observed, in fact highly
competitive, involving a large number of suppliers. This fact ensures
that, as one supplier will price his corn so as to best ration it across
the supply period from both his and the consumers' perspective, so
will all such suppliers:
The inland dealers in corn ... including both the farmer and the
baker, are necessarily more numerous than the dealers in any other
commodity, and their dispersed situation renders it altogether
impossible for them to enter into any general combination. If in a year
of scarcity therefore, any of them should find that he had a good deal
more corn upon hand than, at the current price, he could hope to dispose
of before the end of the season, he would never think of keeping up this
price to his own loss, and to the sole benefit of his rivals and
competitors, but would immediately lower it, in order to get rid of his
corn before the new crop began to come in. The same motives, the same
interests, which would thus regulate the conduct of any one dealer,
would regulate that of every other, and oblige them all in general to
sell their corn at the price which, according to the best of their
judgment, was most suitable to the scarcity or plenty of the season.
(ibid., p. 526)
Homogeneity of motives prompts homogeneous behaviour across the
suppliers of the market.
Again, in his consideration of the international trade in corn,
Smith's analysis is equally complex. He argued that free trade in
corn helped to ensure a sufficient supply of the commodity through its
supply period by mitigating the risk for the merchant of being left with
surplus corn on hand at the period's end by allowing him to export
it. He maintained that:
It seems that he considered the normal expectation of risk in
international corn trade to be biased toward the downside, which would
result in a systematic undersupply of corn by risk-averse merchants and
farmers. This is not quite the perfect market outcome.
In the 'Digression' Smith develops further this
consideration of the impact of this market risk into an argument for
free trade in corn. He points out that the greater the geographical area
effectively covered by a market the more likely are the positive and
negative risks associated with supply to offset each other, in
particular weather events. A diversification of risk occurs.
Consequently larger countries are at less risk of suffering a famine;
recall that Europe in Smith's day consisted, to a significant
degree, of many small countries. The freedom of trade between the many
countries on a continent would allow the dearth in one to be offset by
the relative excess in another, particularly where ready transport was
available.
Even so, Smith accepted that in reality small countries with small
markets were at some risk from such free trade as it could be possible
for their supply of corn to be bought up to meet a deficiency in some
other market at the real cost of undersupplying the local market. Policy
should consequently be adjusted accordingly.
Notwithstanding this caveat, he maintained free trade to be
preferable: 'To hinder, besides, the farmer from sending his goods
at all times to the best market, is evidently to sacrifice the ordinary
laws of justice to an idea of publick utility, to a sort of reasons of
state' (loc. cit.), and the 'ordinary laws of justice'
were of paramount importance in Smith's system (Smith 1981, Vol.
II, p. 610). If restraint of trade in corn was to be imposed as he
accepted, it might justifiably be done by small states, though he
recommended that this only be done at a 'very high price'
(Smith 1981, Vol. I, p. 539).
3 Assessing the Richness of the Digression
Thus does the invisible hand weave its magic in the corn market in
general, simultaneously achieving the best outcome in all regards for
both merchant and consumer in all but the smallest of states. In
Smith's view this is not the ideal process that perhaps
today's free market ideologues seem to be promoting when they
appeal to Smith's authority, but one that involved compromise with
individual liberty taking precedence.
What is typical of Smith in this is that his analysis of the demand
and supply relationship is complex; it is detailed and rich in its
implications. His only non-trivial abstraction is to consider the chain
of supply to consist of a single link, which is not material to his
argument. Thus he views the phenomena of supply and demand as a process;
as it actually occurs, through time and in space. Indeed, in considering
the corn market in particular, time is of the essence given the dire
consequences of famine. Consequently, as he articulates the process of a
merchant bringing his corn to the market, Smith necessarily refers to
the consideration that such a merchant must give as to how he can
maximise his return over the period until the next crop becomes
available. In this exposition, the merchant's expectations
necessarily become central to the process: what he 'foresees',
what he 'could hope to dispose of'.
On the other side of the market, consumption of corn is also
considered as occurring across the period between harvests. Timing the
rate of consumption is important for the well-being of the society and
indeed the survival of the labour force. In Smith's view the timing
employed is that signalled by the price of corn offered by the merchant.
A low price will prompt rapid consumption while a high price will
necessitate that it be more gradual. In this way the available corn is
rationed by the market across the supply period the more exactly as the
merchant, indeed the merchants, accurately judge that price which will
cause demand to exhaust all the period's supply of corn just as the
next crop comes in. Moreover, Smith's analysis seems to imply that
the 'prudence' exhibited by the labouring classes is
simplistic, and that, without the price signal, these classes would
consume their corn willy-nilly. They are not equipped with sufficient
prudence to arrive at the sophisticated expectations that the corn
merchant does.
It is clear that this presentation by Smith of the workings of the
market is some distance from what became the demand/supply analysis of
modem undergraduate microeconomics courses. The latter is based upon an
archetypal abstract model screened from many material variables, such as
time, by ceteris paribus (cp) assumptions. In Smith's analysis, as
outlined in the preceding section, there are no explicit cp assumptions.
Smith was so punctilious, notoriously so, given his treatment of his
manuscripts and editorial revisions of his published works, that if he
had intended any cp assumption here it is likely that he would have
stated as much. He was, after all, a classically trained scholar whose
core academic disciplines included logic and rhetoric. Thus in The
Wealth of Nations he employed the common phrases 'other things
being equal' (Smith 1981, Vol. II, p. 677) and 'all other
things being supposed equal' (ibid., p. 812) and a similar
circumlocution (ibid., p. 711.) for that work's general audience,
while in the academic context of his lectures on jurisprudence he
reportedly explicitly stated 'ceteris paribus' when he
intended such to be the case (Smith 1978, pp. 321 and 378). (3) His
sparse employment of the cp strategy was, moreover, not untypical among
his classical school successors as has been noted by D. P. O'Brien
(O'Brien 1975, p. 54).
One of the two instances of his academic use of a cp assumption is
material for a significant piece of Smith's economic analysis:
The intention of money as an instrument of commerce is to circulate
goods nec(e)ssary for men, and food cloaths, and lodging. The greater
part of the food, cloaths, etc. which is laid out to procure this
circulation, the less of food, cloaths, and lodging is there in the
country, and the people are so much the worse fed, cloathd, and lodged,
caet. paribus. So that the nation, instead of having received an
addition to its wealth by the increase of the medium of circulation, is
realy increased in poverty, caet. paribus. For it is not this money
which makes the opulence of a nation, but the plenty of fodd, cloaths,
and lodging which is circulated. (Smith 1978, pp. 377-8)
He was, in other words, not averse to employing a cp assumption in
his economic analysis when he thought it appropriate to make a
particular point in the context of complex circumstances.
It is argued here that the 'Digression' illustrates the
complexity of Smith's analysis in the detailed account given there
of the contemporary corn market, a complexity characteristic of The
Wealth of Nations as a whole. This complexity of analysis necessarily
follows from his philosophy of science, which he professed principally
but not exclusively in his 'The History of Astronomy'; an
early work, but one of the few unpublished papers he was expressly
content, in 1773, to have published posthumously (Mossner and Ross 1978,
p. 168). Interesting material and consistent passages on this subject
are also to be found in the 6th edition, published in 1790, of his
Theory of Moral Sentiments, specifically in Part VII (Smith 1976, pp.
313-14), '... the last part concerning the History of Moral
Philosophy' to which he stated of the 6th edition, '... I am
making many additions and corrections' (Mossner and Ross 1978, pp.
310-11). From this one should conclude that at that time he subscribed
to the views he expressed therein; it is reasonable to argue that he
maintained his principles of his philosophy of science to the end of his
career.
Smith's theory of how man develops his theoretical
explanations of natural and human phenomena has long been remarked upon
(inter alios: Stewart 1980, pp. 292-3; Skinner 1979; Griswold 2006). He
begins by explaining the motive for induction. Man gains intellectual
satisfaction from analysing observed phenomena and deriving
generalisations therefrom:
It is evident that the mind takes pleasure in observing the
resemblances that are discoverable betwixt different objects. It is by
means of such observations that it endeavours to arrange and methodize
all its ideas, and to reduce them into proper classes and
assortments.... this is the origin of those assortments of objects and
ideas which in the schools are called Genera and Species, and of those
abstract and general names, which in all languages are made use of to
express them. (Smith 1980, pp. 37-8)
Man gets satisfaction from such abstraction. The analysis of
classifying similar things together is pleasing because it provides man,
he believes, with greater knowledge and understanding of things:
'Whatever, in short, occurs to us we are fond of referring to some
species or class of things, with all of which it has a nearly exact
resemblance ... we are apt to fancy that by being able to do so, we show
ourselves to be better acquainted with it, and to have a more thorough
insight into its nature' (ibid., pp. 38-9). (4)
Such is his explanation of the process of analysis. On synthesis he
is more elaborate, informing it with his theory of human motivation:
when we encounter a novel experience that defies our existing
classifications and hence understanding of things, we are destabilised
and experience the psychological state of 'Wonder':
It leaves us disconcerted; out of equilibrium. This unsettled state
of mind prompts further inquiry, for only by successfully classifying
this novelty can 'Wonder' be alleviated and stable comfort
restored:
We are compelled to find some way of linking the anomalous
observation with the classes we have already defined: to smoothly bridge
the gap which we have encountered between the novel phenomena and those
with which we are familiar.
This same observation holds for differences in observed chains of
events relative to those with which one is accustomed, as it does for
singular ones; that is, for causal explanations: '... a succession
of objects which follow one another in an uncommon train or order, will
produce the same effect, though there be nothing particular in any one
of them taken by itself' (loc. cit.). Like David Hume (Skinner
1979, p. 14; cf. Hume 1993, [section] VII Part II) (5), Smith reasoned
that the habitual observation of the same series of events results in
the observer relating these events in the series so as to expect them to
always occur thus, as a causal chain along which the mind moves smoothly
and without effort:
When objects succeed each other in the same train in which the
ideas of the imagination have thus been accustomed to move ... They fall
in with the natural career of the imagination; and as the ideas which
represented such a train of things would seem all mutually to introduce
each other, every last thought to be called up by the foregoing, and to
call up the succeeding; so when the objects themselves occur, every last
event seems, in the same manner, to be introduced by the foregoing, and
to introduce the succeeding. There is no break, no stop, no gap, no
interval. (Smith 1980, pp. 40-1)
We are content, we are in mental equilibrium.
If, however, the expected succession does not occur at some point,
the observer is at first surprised and then wonders why:
The mind, in its discomfort, seeks to bridge the gap in the
expected chain of events and does so by hypothesising such a connection
informed by empirical evidence; the observer produces a causal theory
that will again permit his mind to move smoothly along the chain of
events:
Science is what provides the explanation of phenomena that removes
the jarring discontinuities in perceived causal chains, thereby
returning man's mind to its desirable and natural state of
equanimity:
Smith presents what one can almost call an aesthetic of scientific
enquiry (Redman 1997, p. 224). As Mark Blaug (1992, p. 53) remarked
somewhat disparagingly, even Smith's 'standard of judgement of
scientific ideas was more often aesthetic than strictly
cognitive...'. In this regard, as Skinner has observed, there is a
remarkable similarity between Smith and G. S. L. Shackle's view on
this subject (Skinner 1979, p. 40).
Historically, Smith argues, the test of a sound theory has been its
coherence and simplicity, even in the face of contradictory empirical
evidence. With regard to Copernicus, Smith observed:
... the learned begin to examine, with some attention, an
hypothesis which afforded the easiest methods of calculation, and upon
which the most exact predictions had been made. The superior degree of
coherence, which it bestowed upon the celestial appearances, the
simplicity and uniformity which it introduced into the real directions
and velocities of the Planets, soon disposed many astronomers, first to
favour, and at last to embrace a system, which thus connected together
so happily, the most disjointed of those objects that chiefly occupied
their thoughts. Nor can any thing more evidently demonstrate, how easily
the learned give up the evidence of their senses to preserve the
coherence of the ideas of their imagination ... notwithstanding its
inconsistency with every system of physics then known in the world, and
notwithstanding the great number of other more real objections, to
which, as Copernicus left it, this account of things was most justly
exposed. (Smith 1980, pp. 76-7)
While there is little doubt that Smith believed that science was
concerned with the explication of an objective reality, of the world as
presented by empirical observation, he maintained that our explanations
of that world are but arcane hypothesised connections between disjointed
phenomena; he did not assert that those connections were themselves
real. Like Hume, he had no grounds in reason for arguing this. (6) He
did, however, admit that so powerful an argument as that of the
Newtonian system may generally be accepted as representing things as
they are in reality and he further admitted to having been seduced to
use the language of such a belief, though he retained his stated
position that systems of causal theories can only be said to be
constructs of the mind:
This said, for him there remains an essential role for empirical
observation in corroborating our scientific hypotheses in the eyes of
our peers. The greater its corroboration by empirical evidence, the more
a theory will appeal to philosophers. Smith, for example, observed with
regard to Hipparchus's astronomical theories: '... as the
events corresponded to his predictions, with a degree of accuracy which
... was greatly superior to any thing which the world had then known,
they ascertained, to all astronomers and mathematicians, the preference
of his system, above all those which had been current before it'
(ibid., p. 65).
It is, moreover, with regard to their respective potential for
empirical corroboration that Smith identified a significant difference
between natural and moral sciences. While a plausible theory that is
empirically false may be subscribed to for some time in the natural
sciences, the same cannot be so in the moral sciences, he argued, for in
the latter the empirical evidence is generally and immediately apparent:
A system of natural philosophy may appear very plausible, and be
for a long time very generally received in the world, and yet have no
foundation in nature, nor any sort of resemblance to the truth.... But
it is otherwise with systems of moral philosophy, and an author who
pretends to account for the origin of our moral sentiments, cannot
deceive us so grossly, nor depart so very far from all resemblance to
the truth. When a traveller gives an account of some distant country, he
may impose upon our credulity the most groundless and absurd fictions as
the most certain matters of fact. But when a person pretends to inform
us of what passes in our neighbourhood, and of the affairs of the very
parish which we live in, though here too, if we are so careless as not
to examine things with our own eyes, he may deceive us in many respects,
yet the greatest falsehoods which he imposes upon us must bear some
resemblance to the truth, and must even have a considerable mixture of
truth in them. (Smith 1976, pp. 313-14)
Unlike many of today's views on this subject, Smith maintained
that what are now called human or social sciences have stronger
empirical credentials than the natural sciences. Indeed, the mental
sciences have the strongest credentials of all; it is their empirical
information which is most immediately observable (namely, by
introspection) and which possesses the greatest veracity.
Still, Smith's account of the veracity of empirical evidence
is sceptical even with regard to that least liable to error, (7) namely,
that applicable to moral philosophy and his Theory of Moral Sentiments.
But much of Smith's subject matter in The Wealth of Nations
was regarding 'far countries': his political economy falls
somewhere between astronomy and moral theory. For example, one work
which Smith possessed which provides extensive accounts of Asia and from
which he often took the historical evidence supporting both his economic
and stadial theories--was Samuel Purchas's Pilgrimes (Mizuta 1967,
p. 132). (8) It has been remarked, however, that this work provided
somewhat prejudiced second-hand reports from travellers to the Orient
(Marshall 1998, p. 272). Smith's empirical support for his The
Wealth of Nations would seem to warrant his own caveats regarding such
matters. Interestingly in this context, the 'Digression'
principally uses statistical evidence gathered closer to home but
includes one of Smith's statements of his doubt regarding the
reliability of economic statistics: 'I have no great faith in
political arithmetick ...', he observed (Smith 1981, Vol. I, p.
534).
How does all this lead to his treatment of questions of political
economy in a complex manner? (9) From Smith's perspective the
strength of a theory lay in its ability to fill in the gaps between
phenomena we encounter as completely as possible, namely, so as to leave
no gap, and to do so with the greatest coherence. This can only be
achieved by treating all the relevant phenomena in detail both in
classifying them and explaining the causation between them: in
particular to employ the cp strategy is to risk creating gaps, indeed
chasms on either side of the resultant path of analysis cut through an
inherently complex subject, and thereby also mental discomfort. The
copious detail in The Wealth of Nations for which it is well known and
which is so well exemplified by the 'Digression' with its
detailed analysis of the functioning of the corn market in space and
over time, is necessary to completely fill the gaps to be found between
the economic phenomena he observed.
This analysis of the corn market, moreover, well illustrates the
fruitfulness of Smith's approach. In answer, then, to Tony
Aspromourgos's (2009, p. 63) question, '... one may ask how
seriously ought one take Smith's notion of science as a means to
mere imagination of unified explanation of the variety of phenomena, if
applied to his own scientific activity?', one can say that
Smith's notion of science should indeed be taken seriously; it
resulted in a nuanced understanding of the corn market. It showed the
critical role of expectations therein and raised implications for the
problem of famine within the supply period and beyond. It also provides
a substantial explanation for why The Wealth of Nations is not a slim
volume. As for Smith's use of the term 'imagination', one
might presume that it denoted the 'forming a mental concept of what
is not actually present to the senses' (Shorter Oxford English
Dictionary), an older more technical use of this term than today's,
which corresponds very much with Hume's use of it in the same
context. Indeed, it corresponds very closely with Smith's concept
of 'hypothesising' connections between phenomena: hypotheses
are strictly the product of imagination. For Smith imagination is not
trite; it is perfectly coherent with his view on the nature of
philosophical endeavour. Moreover, his repeated use of the term
'imagination' indicates the epistemological significance he
gave to hypothesis in scientific enquiry. (10)
Nor is the prospect that his scientific theories are but hypotheses
produced in the imagination an insurmountable problem for Smith's
policy prescriptions, for he insisted that all such hypotheses should be
tested by reference to experience. Thus, if a policy based on a theory
gave the desired result, then it worked and was 'true' in a
pragmatic sense. But Smith's position would seem to have been that
this was strictly all one could say. Like Hume, he could not make any
categorical assertion regarding a theory's correspondence with an
external reality. He merely left the thorny question of the connection
between phenomena and our knowledge of them in abeyance.
The 'Digression' also includes a powerful statement of
the role Smith saw for political freedom and security as a driver for
the economic progress of nations. Here he asserts that political freedom
and security is a sufficient cause for such economic progress:
That security which the laws in Great Britain give to every man
that he shall enjoy the fruits of his own labour, is alone sufficient to
make any country flourish, notwithstanding these and twenty other absurd
regulations of commerce; and this security was perfected by the
revolution, much about the same time that the bounty was established.
The natural effort of every individual to better his own condition, when
suffered to exert itself with freedom and security, is so powerful a
principle, that it is alone, and without any assistance, not only
capable of carrying on the society to wealth and prosperity, but of
surmounting a hundred impertinent obstructions with which the folly of
human laws too often incumbers its operations; though the effect of
these obstructions is always more or less either to encroach upon its
freedom, or to diminish its security. (Smith 1981, Vol. I, p. 540)
For Smith, human action, and therefore economic action, is
purposeful (Haakonssen 2006, p. 11); it is rational. Such action viewed
as occurring in time is necessarily founded on expectations and Smith
did view economic activity as occurring in time. Given this, it is
essential that economic expectations are protected from risk as much as
possible. Indeed it would seem that Smith held that such expectations
could be all too easily disturbed, particularly by the actions of agents
of the state. Individual security and liberty underpin economic progress
for Smith, as is reflected in his historical account of the English
economy and his express approval of the doctrines of the Physiocrats
(Smith 1981, Vol. II, pp. 678-9).
4 Conclusion
Smith developed quite specific views as to the nature of
philosophic enquiry to which he evidently subscribed throughout his
career. If one accepts that he was in fact as rigorous and conscientious
a philosopher as the evidence suggests and that he both advocated and
practised the principle of coherence, then one should expect to see this
methodology applied in The Wealth of Nations: 'it informs the
methodology of all his works' (Vicenza 2001, p. 28). He certainly
explicitly applied it to moral philosophy. One of the implications of
his views on this matter is that analysis must be complex and detailed
so as to best bridge the gaps in our understanding. This is evident in
the 'Digression'. It was his ability to treat the analysis of
economic phenomena in complex terms, while not abstracting from the
essential characteristics of economic action that occur in time and in
space, which enabled Smith to argue convincingly for policies that were
pertinent to his contemporary world. He appears, moreover, not to have
been doctrinaire in his policy prescriptions; always allowing for
exceptions at the margins as circumstances required. He was not 'a
man of system' (Smith 1976, pp. 233-4). If he was doctrinaire at
all, it was with regard to the desirability of liberty and security, the
necessary prerequisites of rational economic activity, that is, of
'prudence'.
Bibliography
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Notes
(1) On this matter Richard Cobden was to cite Smith's
authority some 68 years later. (Cobden 1995, pp. 23l-2).
(2) This should be added to the enumeration of causes of famine
considered by Smith given in Emma Rothschild and Amartya Sen (2006, pp.
325-6).
(3) All the references herein to these Lectures are to those
denoted LJ(A), the 1762-3 session notes.
(4) The use of the term 'fancy' is curious, but one
meaning applied since 1672, 'To believe without being able to
prove', is evocative of Smith's use of his concept of
'imagination' (Shorter Oxford English Dictionary).
(5) Note Hume's use of the term 'imagination' in
this context; it is the same as Smith's (see also Redman 1997, p.
222). Deborah Redman also draws attention to similarities with
'Hutcheson's view in A Short Introduction to Moral Philosophy
that to discover "some natural connexion or order" among the
"confused combination of jarring principles" and "to shew
how all these parts are to be ranged in order" represents "the
main business of Moral Philosophy"' (ibid., p. 222n). Francis
Hutcheson's reference to 'jarring' principles points
toward Smith.
(6) When relating the empirical triumph of the Copernican system in
his 'History of Astronomy', Smith gives little credence to the
correspondence truth of the supporting evidence: 'The analogy of
nature, therefore, could be preserved completely, according to no other
system but that of Copernicus, which, upon that account, must be the
true one. This argument is regarded by Voltaire, and the Cardinal of
Polignac, as an irrefragable demonstration; even M Laurin, who was more
capable of judging; nay, Newton himself, seems to mention it as one of
the principal evidences for the truth of that hypothesis. Yet, an
analogy of this kind, it would seem, far from a demonstration, could
afford, at most, but the shadow of a probability' (Smith 1980, p.
90).
(7) There is no evidence that this difference between natural and
moral philosophy amounted in Smith's view to an ability in the
latter to be able to discern causal connections as Gloria Vivenza would
seem to maintain (Vicenza 2001, p. 28); it is merely a reference to the
greater veracity of its empirical evidence.
(8) That he read this work is evident from the reference that he
made to it in a letter of 12 February 1767 to Lord Shelburne (Mossner
and Ross 1978, pp. 122-3).
(9) Indeed, this complexity is a characteristic of his analysis in
the Theory of Moral Sentiments (Haakonssen 2006, p. 5)
(10) To cite John Locke: 'But when, from the observations we
have made of diverse particulars, we make a general idea to represent
any species in general, as man; or else join several ideas together
which we never observed to exist together, we call it imagination'
(King 1830, Vol. II, p. 170). The stuff of empirical science,
generalisation and hypothesis, for him too was of the imagination.
M. B. Harvey-Phillips *
* School of Business, University of Notre Dame Australia, Fremantle
Campus, PO Box 1225, Western Australia 6959. Email: mbhp48@hotmail.com.
If, by raising it too high, he discourages the consumption so much
that the supply of the season is likely to go beyond the
consumption of the season, and to last for some time after the next
crop begins to come in, he runs the hazard, not only of losing a
considerable part of his corn by natural causes, but of being
obliged to sell what remains of it for much less than what he might
have had for it several months before. (loc. cit.)
... unless the surplus can, in all ordinary cases, be exported, the
growers will be careful never to grow more, and the importers never
to import more, than what the bare consumption of the home market
requires. That market will very seldom be overstocked; but it will
generally be understocked, the people, whose business it is to
supply it, being generally afraid lest their goods should be left
upon their hands. The prohibition of exportation limits the
improvement and cultivation of the country to what the supply of
its own inhabitants requires. The freedom of exportation enables it
to extend cultivation for the supply of foreign nations. (ibid., p.
537)
As among the different provinces of a great empire the freedom of
the inland trade appears, both from reason and experience, not only
the best palliative of a dearth, but the most effectual
preventative of a famine; so would the freedom of the exportation
and importation trade be among the different states into which a
great continent was divided. The larger the continent, the easier
the communication through all the different parts of it, both by
land and by water, the less would any one particular part of it
ever be exposed to either of these calamities, the scarcity of any
one country being more likely to be relieved by the plenty of some
other. (ibid., pp. 538-9)
The unlimited freedom of exportation, however, would be much less
dangerous in great states, in which the growth being much greater,
the supply could seldom be much affected by any quantity of corn
that was likely to be exported. In a Swiss canton, or in some of
the little states of Italy, it may, perhaps, sometimes be necessary
to restrain the exportation of corn. In such great countries as
France or England it scarce ever can. (ibid., p. 539)
But when something quite new and singular is presented, we feel
ourselves incapable of doing this [classifying as we are accustomed
to].... It stands alone by itself in the imagination, and refuses
to be grouped or confounded with any set of objects whatever. The
imagination and memory exert themselves to no purpose, and in vain
look around all their classes of ideas in order to find one under
which it may be arranged. They fluctuate to no purpose from thought
to thought, and we remain still uncertain and undetermined where to
place it, or what to think of it. It is this fluctuation and vain
recollection, together with the emotion or movement of the spirits
that they excite, which constitute the sentiment properly called
Wonder. (ibid., p. 39, italics in the original)
... to some class or other of known objects he must refer it, and
betwixt it and them he must find out some resemblance or other,
before he can get rid of that Wonder, that uncertainty and anxious
curiosity excited by its singular appearance, and by its
dissimilitude with all the objects he had hitherto observed.
(ibid., p. 40)
But if this customary connection be interrupted, if one or more
objects appear in an order quite different from that to which the
imagination has been accustomed ... the contrary of all this
happens. We are at first surprised by the unexpectedness of the new
appearance, and when that momentary emotion is over, we still
wonder how it came to occur in that place. (ibid., p. 41)
The fancy is stopped and interrupted in that natural movement or
career, according to which it was proceeding. Those two events seem
to stand at a distance from each other; it endeavours to bring them
together, but they refuse to unite; and it feels, something like a
gap or interval betwixt them ... it endeavours to find out
something which may fill up the gap ... as to render the passage of
the thought betwixt them smooth, and natural, and easy. The
supposition of a chain of intermediate, though invisible, events,
which succeed each other in a train similar to that in which the
imagination has been accustomed to move, and which link together
those two disjointed appearances, is the only means by which the
imagination can fill up this interval. (ibid., pp. 41-2, italics
added)
Philosophy is the science of the connecting principles of nature.
Nature, after the largest experience that common observation can
acquire, seems to abound with events which appear solitary and
incoherent with all that go before them, which therefore disturb
the easy movement of the imagination ... Philosophy, by
representing the invisible chains which bind together all these
disjoint objects, endeavours to introduce order into this chaos of
jarring and discordant appearances, to allay this tumult of the
imagination, and to restore it, when it surveys the great
revolutions of the universe, to that tone of tranquillity and
composure, which is both most agreeable in itself, and most
suitable to its nature. (ibid., pp. 45-6)
And even we, while we have been endeavouring to represent all
philosophical systems as mere inventions of the imagination, to
connect together the otherwise disjointed and discordant phenomena
of nature, have insensibly been drawn in, to make use of language
expressing the connecting principles of this one [Newton's], as if
they were the real chains which Nature makes use of to bind
together her several operations. (ibid., p. 105)
An author who treats of natural philosophy, and pretends to assign
the causes of the great phenomena of the universe, pretends to give
an account of the affairs of a very distant country, concerning
which he may tell us what he pleases, and as long as his narration
keeps within the bounds of seeming possibility, he need not despair
of gaining our belief. But when he proposes the origins of our
desires and affections, of our sentiments of approbation and
disapprobation, he pretends to give an account, not only of the
affairs of the very parish that we live in, but of our own domestic
concerns. Though here too, like indolent masters who put their
trust in a steward who deceives them, we are liable to be imposed
upon, yet we are incapable of passing any account which does not
serve some little regard to the truth. (loc. cit.)